On April 4th, Paxful, a peer-to-peer cryptocurrency marketplace, announced the suspension of its operations.
Founder and CEO Ray Youssef cited regulatory pressure and key staff departures as the reasons behind the decision. Youssef also stated that it is uncertain whether the marketplace will return.
Paxful is an American company that serves a global audience, with a focus on the global south. Youssef said that a quarter of the company’s staff were compliance personnel, but even that was not enough to satisfy regulators. Youssef added that American regulators have caught up with their pace in the last five years, but they still don’t understand the business model of cryptocurrency marketplaces.
Youssef highlighted the company’s use of gift cards to onboard people in Africa without bank accounts as one of the activities that drew regulatory attention in the United States. He also said that blocking US customers and continuing operations would have been an option if they had the staff. However, it does not make business sense to do so.
In addition to regulatory pressure, Paxful is also facing a legal dispute with co-founder and former COO Artur Schaback. Schaback sued the company in January, naming Youssef and former CLO Jude Chidi Ogene as defendants. The complaint in that case has been sealed.
Paxful has asked its customers to withdraw their funds, and the blog post provides links to other platforms that Paxful suggested for non-U.S. users to migrate to. The company also announced on March 29th that it was refunding its Earn program users the funds that had been locked up in Celsius after its bankruptcy.
Paxful’s suspension is a reminder of the regulatory challenges faced by cryptocurrency marketplaces. Cryptocurrency is a relatively new asset class, and regulations vary from country to country. Companies that operate in the cryptocurrency space need to be proactive in their compliance efforts to avoid regulatory scrutiny.